Sunday, June 22, 2008

Cross-Price Elasticity: Consumers Respond

In economics, the cross price elasticity of demand measures the responsiveness of the quantity demanded of one good (X), to a change in the price of another good (Y).

As gas prices have soared, consumers have cut back on the amount of gas purchased (measured by the price elasticity of demand, which would be negative), but high gas prices have also resulted in increased purchases of other products and services (positive cross-price elasticity), and Greg Mankiw and Division of Labour have been keeping track:

Also, while time is money, I'm a cheap bastard who needs to exercise - my manual lawn mower (owned since 2001) does the trick nicely and I never seem to run out of gas just when I need to mow the lawn. But the last thing I am is a greenie!

Also, while time is money, I'm a cheap bastard who needs to exercise - my manual lawn mower (owned since 2001) does the trick nicely and I never seem to run out of gas just when I need to mow the lawn. But the last thing I am is a greenie!

> Also, while time is money, I'm a cheap bastard who needs to exercise

My issue wasn't with you -- your reasoning and purpose for using a manual mower is presumably valid for you (might be cheaper and more fun to join a health club and watch pretty girls while you work out, though).

My issue is with damnfools who claim it's "saving energy". They'd be better off, in most cases, figuring out how to make more wealth for society (and themselves in the bargain). Granted, most of the people who would make such a transition are unimaginative dunderheads, but that's a different issue. 'Danes are always out of touch with reality.

...No, not 'Danes'. Apostrophe-danes, as in 'mundanes'. People with no imagination. People who couldn't imagine space travel even AFTER it happened. - Niven/Pournelle/Flynn, 'Fallen Angels' -

Backed by studies showing that middle-class Seattle residents can no longer afford the city's middle-class homes, consensus is growing that prices are too darned high. But why are they so high?

An intriguing new analysis by a University of Washington economics professor argues that home prices have, perhaps inadvertently, been driven up $200,000 by good intentions.

Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities. (there is more)